U.S. Cotton Market Update: Demand and Supply for 2022 Uncertain Amidst Global Crises
March 23, 2022
Inflation and the War in Ukraine Will Likely Affect Both Sides of the Cotton Market
The cotton market has been shaken by major global events for the past couple of years. The invasion of Ukraine is just the latest in the series in a list including the trade dispute, COVID-19, unprecedented macroeconomic volatility, inflation, and the shipping crisis. Despite these challenges, cotton prices climbed to the highest values in a decade and remain high by historical terms. Uncertainty dominates the U.S. cotton market, however, and it remains to be seen how long it will hang onto these gains as the global environment evolves.
On February 24, the USDA released preliminary estimates for the upcoming 2022/23 crop year (starting August 2022 and ending July 2023). It projected that higher cotton prices in recent months would cause global production to rise to 120.2 million bales (+3.2% year-over-year). With forecasts for global economic growth calling for above-average growth in 2022 and 2023, the USDA suggested that global mill-use could rise slightly in 2022/23 (+1.7% to 126.5 million bales).
The net result is that they project a slight production shortfall, with 2.6 million more bales expected to be used than grown. Production shortfalls usually result in higher prices. However, the reserve of global cotton stocks that resulted from COVID-19 disruptions, and the level of stocks predicted to be in storage (81.7 million bales representing 65% of global mill-use) at the end of 2022/23 is still high relative to historical averages.
NY/ICE Cotton Futures Since 2020
Uncertain Demand Amidst Inflation and the War in Ukraine
Uncertainty prompted by concern over the war in Ukraine might shift consumer spending away from discretionary items (including clothing) and pull down cotton demand further. Rising prices on essential goods and services, particularly the surge in energy prices and inflated prices for food, may decrease consumers’ discretionary incomes. As a category, clothing falls between need and want, but price increases for more essential items could depress cotton demand. Higher interest rates, which the government uses to combat inflation, could also stifle economic growth and drag down cotton use.
Higher Prices in Other Commodities Might Shift Acreage and Cotton Supply
From the supply side, the war in Ukraine has already changed the calculus surrounding planting decisions. While cotton was increasingly attractive in the first two months of the year, the invasion of Ukraine brought on sharp increases in wheat prices and strong gains in prices for corn and soybeans. Growers still have a few months to adjust their planting decisions, but the latest developments in crop prices may shift acreage out of cotton to more profitable commodities.
A survey conducted by the National Cotton Council (NCC) at the end of 2021 suggests that U.S. growers would plant 12 million acres this spring, an increase of 7% over last year. The USDA predicted that U.S. growers would plant 12.7 million acres, a 13% increase. Even in the context of recent global events, more U.S. acreage seems likely, though as these predictions demonstrate, the size of the bump remains in question.
Even after the planting season, questions will remain about acreage harvested and yield. West Texas is home to about one-third of U.S. planted acreage, and the region receives little rainfall. Cotton is drought-tolerant, but if the current drought in West Texas does not lift, it may cause planted acres to be abandoned ahead of harvest. In addition, like consumers, cotton growers are grappling with inflation. Higher prices for inputs may lead to lower applications, and lower applications could impact yield. Assuming average yields and abandonment, the USDA indicated that the U.S. could collect 18.2 million bales in the 2022/23 crop year. Relative crop prices, input costs, and the weather may produce a different volume, but the preliminary forecast suggests an increase of 3%.
Every crop year is different, but the outlook for 2022/23 is particularly uncertain. Beyond the factors influencing the supply side, the demand side of the U.S. balance sheet depends on geopolitical events, the pandemic, and inflation. Current estimates for cotton stocks suggest that global supply will be adequate. Three percent growth in U.S. production likely will not be enough to replenish tight U.S. stocks. As the global cotton market seams focused on the U.S. supply situation in recent years, this could support prices in 2022/23. However, the world has proven to be a rapidly changing and the outlook can be expected to evolve as events unfold.
The work we do is possible because of collaborations with researchers like these and partnerships with people all throughout the value chain. Ready to commit to sustainably produced cotton? Become a Cotton LEADS℠ partner today. Interested in doing even more? Contact us for ideas to get the most out of sustainable cotton and your partnership with Cotton LEADS.
Sharing And Caring At The Heart Of Water Efficiency For Cotton Growers
Science, research and technology are all playing a spectacular role in helping Australian cotton growers into a new era of water efficiency that positions them among the best in the world.Get the full story
Sustainable Soil Health Practices from a Grower’s Eye View
A cotton grower shares how focusing on soil health as part of a sustainable agriculture strategy can benefit his farm for generations.Get the full story
U.S. Cotton Trust Protocol Announces $90+ Million Program to Support Sustainability Practices on U.S. Cotton Farms
The U.S. Climate Smart Cotton Program aims to benefit more than 1650 cotton farmers and produce 4 million bales of Climate Smart Cotton over 5 years.Get the full story
Using Whole Cottonseed Benefits Nutrition and the Environment
Whole cottonseed benefits livestock nutrition and cottonseed oil provides a great cooking option, with zero additional environmental impacts.Get the full story
Large Australian cotton crop still expected in 2023 despite constant rain
The Australian cotton industry is still expecting a large cotton crop despite the persistent rain in much of New South Wales and Queensland impacting on already sodden paddocks, and in some cases, delaying picking and planting.Get the full story
Farmers unite in push for chemical reductions in cotton farming
An increasing number of farmers are applying bulky organic fertilisers like manures, composts, and biosolids on their fields to reduce reliance on synthetic mineral fertilisers.Get the full story
Imminent Breakthroughs in U.S. Cotton Energy Efficiency
Research in nutrient efficiency, conservation tillage and farm management equipment promises major energy use reductions for cotton in the coming years.Get the full story
How U.S. Cotton Growers Support Biodiversity with Sustainable Agriculture
Proven sustainable agricultural practices and precision conservation tools help cotton growers protect biodiversity.Get the full story
Australian Cotton the focus of Indonesian visit
Cotton growers – through Cotton Australia’s Cotton to Market program and the Australian Cotton Shippers Association (ACSA) - have been represented in key supply chain meetings in Indonesia.Get the full story
Wrap up: Science, biodiversity, innovation brings cotton industry together
If you were unable to attend the Australian Cotton Conference or missed a few sessions we’ve got you covered. Catch the replays online.Get the full story
Top cotton award winners announced at the Australian Cotton Conference
The Australian cotton industry's top performers for 2022 have been acknowledged at an awards ceremony on the Gold Coast.Get the full story
How Precision Agriculture is Revolutionizing U.S. Cotton Water Use
Emerging technologies and continued research mean that U.S. cotton can be grown using dramatically less water than it required 30 years ago.Get the full story